With Recent Assaults, Iran Escalates Gulf Tensions

Last month we published an oil market commentary that attempted to put the tanker attacks in the Gulf of Oman, Iranian frustration at the severity of U.S. sanctions, and deliberations by the Organization of the Petroleum Exporting Countries in context. The analysis highlighted the facts that Iran sees itself as a regional power and had learned well from North Korea’s example of using aggressive and threatening tactics to bring adversaries to the negotiating table. It concluded that the Iranian regime, unable or unwilling to comply with U.S. Secretary of State Mike Pompeo’s 12 conditions for negotiations, would, in all likelihood, look for other opportunities to (re)gain leverage in hopes of reframing negotiations with the United States and others on a different and presumably more beneficial footing. And that while the threat of closing the Strait of Hormuz to all tanker traffic was highly unlikely, a more predictable strategy would involve continued, albeit lower level, marine harassment.
 
Two weeks ago, we reiterated those warnings noting that the uranium enrichment breach (above levels allowed under the Joint Comprehensive Plan of Action or JCPOA) and the seizure of an Iranian oil tanker off Gibraltar added new dimensions to the escalating threat. This past week’s events—involving the detainment of two additional vessels in the Gulf, reports of new drone attacks, and the deployment of additional U.S. troops to the region—have only added to that tension, despite warnings and pronouncements from multiple parties urging de-escalatory action.
 
In the last several weeks, at least seven oil tankers have been attacked in and around the Strait of Hormuz, the United States and Iran both claim to have documented opposing drone assaults, and security has been bolstered in an apparent attempt to discourage further maritime interference. That said, the logistics, cost, and deployment of a multinational escort effort remain problematic—a fact evidenced by last week’s seizure of the British-flagged Stena Impero (a British warship was in the area but unable to respond to prevent the intercept). The Impero’s detention is widely believed to be in retaliation for the British seizure of an Iranian vessel off Gibraltar on July 4 and the timing coinciding with a Gibraltar court’s ruling to allow the tanker to remain in custody for an additional 30 days pending completion of the ongoing investigation. A second tanker, the Liberian-flagged Mesdar, was also detained last week but later released and allowed to continue its voyage.
 
The targeting and timing of the Iranian attacks raise several issues. First, the selective targeting of Saudi, Emirati, Japanese, British, and Norwegian vessels speaks to Iran’s dissatisfaction with certain governments either aligned with the U.S. sanctions effort or (as in the case of the Europeans who still support the JCPOA) unable or unwilling to provide needed economic relief to offset sanctions impacts. Japanese prime minister Shinzo Abe was in Tehran reportedly delivering a message from President Trump when the Japanese vessel was sabotaged in the Gulf of Oman. Not surprisingly, no Chinese, Indian, or Russian vessels have been similarly targeted.
 
Second, the detention of the Impero specifically fulfilled an Iranian threat to retaliate directly against the British for the Gibraltar seizure. And the decision was undoubtedly made easier by the impression that the British—currently in the throes of selecting a new prime minister—were not in a position to forcefully respond. British foreign secretary Jeremy Hurt, a contender for the PM slot, initially tweeted that a “robust” response would be forthcoming, but later suggested that the government was pursuing a diplomatic rather than military route.
 
Finally, when viewed in combination—the tanker attacks along with selective proxy, assaults on regional energy infrastructure and facilities (recall mines off the Strait of Bab al Mandeb, drone strikes on Saudi Arabia’s East-West pipeline and pumping station, etc.)—Iran has clearly signaled both its intent and ability to temporarily disrupt regional oil and energy shipments wherever and whenever it wishes. That strategy presumes, however, that such engagements are limited both in scope and duration as neither Iran, its neighbors, nor major global powers want a direct or large-scale military confrontation.
 
What remains problematic, however, is the risk of continued escalation, more audacious assaults, and miscalculation. Today the U.S. Treasury Department added Chinese trading firms to the Iran sanctions list, and the Iranian intelligence agency announced the arrest of 17 Iranians accused of being spies for the CIA. The political stalemate persists between the United States and Iran. The Iranian regime remains beset by both internal and external pressures and increasingly resorts to provocative acts, while third-party interventions/solutions have, so far, proved elusive and ineffective.
 
At least for now, oil markets and prices (below last week’s level) reflect greater concern for deteriorating/anemic demand growth than the risk of abrupt or significant supply losses—a bet that may be misplaced. Insurance rates and security concerns regarding Gulf operations and transit continue to rise. But as headlines change, perceptions and prices invariably adjust—raising both the stakes and risks of additional conflict.
 
Frank Verrastro is a senior vice president and trustee fellow with the Energy and National Security Program at the Center for Strategic and International Studies in Washington, D.C.
 
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Frank A. Verrastro
Senior Adviser (Non-resident), Energy Security and Climate Change Program